March 14, 2017 / 9:09 PM / 5 months ago

CANADA FX DEBT-C$ weakens as oil prices slide to 3-month low

 (Adds strategist comment, updates prices to close)
    * Canadian dollar ends at C$1.3485, or 74.16 U.S. cents
    * Bond prices slightly higher across flatter yield curve

    By Alastair Sharp
    TORONTO, March 14 (Reuters) - The Canadian dollar weakened
on Tuesday against its U.S. counterpart as prices of oil, one of
Canada's major exports, fell and the greenback climbed broadly
ahead of a widely expected interest rate hike by the U.S.
Federal Reserve.
    Oil tumbled to a three-month low after OPEC reported a rise
in global crude stocks and a surprise output jump from its
biggest member, Saudi Arabia, further pressuring prices that
have almost completely erased gains since the producer cartel
announced planned production cuts in November.      
    Meanwhile, with U.S. inflation showing signs of quickening,
Fed policymakers may signal on Wednesday there could be more
than the three rate rises they forecast for this year.
            
    By comparison, the Bank of Canada has maintained a cautious
tone, leading to a widening spread between the yields of the two
countries' bonds.
    "Oil had been this pillar of support that had been
offsetting the drag from spreads," said Eric Theoret, a currency
strategist at Scotiabank. "The decline in oil is removing some
of that support." 
    Canadian government bond prices were slightly higher across
a flatter yield curve, with the two-year            up 4
Canadian cents to yield 0.854 percent and the 10-year
            rising 34 Canadian cents to yield 1.835 percent.
    The two-year yield fell 2.9 basis points further below its
U.S. Treasury equivalent to a spread of -52.6 basis points.
Earlier in March, it had touched its widest gap since January
2016 at -55.2 basis points.    
    The Canadian dollar          settled at C$1.3485 to the
greenback, or 74.16 U.S. cents, weaker than Monday's close of
C$1.3444, or 74.38 U.S. cents.
    The currency's strongest level of the session was C$1.3440,
while its weakest was C$1.3496.
    Last week the loonie hit a two-month low at C$1.3535 as oil
dropped below $50 a barrel and as the yield advantage for the
U.S. dollar grew.
    Gains for the U.S. dollar        against a basket of
currencies also came as European currencies were weighed down by
perceived political risks from Dutch and French elections as
well as Britain's planned exit from the EU.       

 (Additional reporting by Fergal Smith, editing by G Crosse)
  
 

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